Correlations and Volatilities of Asynchronous Data

UCSD Economics Discussion Paper 97-30

Posted: 4 Mar 1998

See all articles by Patrick Burns

Patrick Burns

Burns Statistics

Robert F. Engle

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); New York University (NYU) - Volatility and Risk Institute

Joseph Mezrich

Salomon Smith Barney, Inc., U.S.

Date Written: April 1998

Abstract

Asset prices are typically measured when markets close however the closing times may differ across markets. As a result the returns appear to have predictability and correlations are understated. This will distort the value of portfolios, value at risk measures, and hedge strategies. A solution is proposed. Prices can be "synchronized" by computing estimates of the values of assets even when markets are closed, given information from markets which are open. From these prices, synchronized returns are defined and can be used to perform standard calculations including measuring time varying volatilities and correlations with GARCH. The method is applied to G7 index data

Note: 676

JEL Classification: G12

Suggested Citation

Burns, Patrick J. and Engle, Robert F. and Mezrich, Joseph, Correlations and Volatilities of Asynchronous Data (April 1998). UCSD Economics Discussion Paper 97-30, Available at SSRN: https://ssrn.com/abstract=64188

Patrick J. Burns

Burns Statistics ( email )

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Robert F. Engle (Contact Author)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Volatility and Risk Institute ( email )

44 West 4th Street
New York, NY 10012
United States

Joseph Mezrich

Salomon Smith Barney, Inc., U.S.

New York, NY 10013
United States

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